Woodbridge, owner charged by SEC in alleged $1.2 billion Ponzi scheme

By Caroline Salls

Pittsburgh, Dec. 22 – The group of unregistered investment companies that make up Woodbridge Group of Cos. LLC and their owner Robert H. Shapiro and have been charged by the Securities and Exchange Commission and had their assets frozen because they “allegedly bilked thousands of retail investors, many of them seniors, in a $1.2 billion Ponzi scheme,” according to an SEC release.

The SEC said it obtained court orders in September and November in subpoena enforcement actions that forced the unregistered companies to open their books.

According to the SEC’s complaint, which was unsealed Thursday in federal court in Miami, Shapiro and the Woodbridge companies defrauded more than 8,400 investors in unregistered Woodbridge funds.

“We allege that through aggressive tactics, Woodbridge and Shapiro swindled seniors into a business model built on lies, which the SEC’s Miami Regional Office staff moved to halt,” SEC enforcement division co-director Stephanie Avakian said in the release.

SEC enforcement division co-director Steven Peikin said, “The only way Woodbridge was able to pay investors their dividends and interest payments was through the constant infusion of new investor money.”

In addition, SEC Miami Regional Office director Eric I. Bustillo said, “Our complaint further alleges that Shapiro used a web of layered companies to conceal his ownership interest in the purported third-party borrowers. Shapiro used the scheme to line his pockets with millions of investor dollars.”

In its complaint, the SEC alleged that Woodbridge advertised its primary business as issuing loans to supposed third-party commercial property owners paying it 11% to 15% annual interest for “hard money,” short-term financing. In return, the SEC alleged Woodbridge promised to pay investors 5% to 10% interest annually.

Woodbridge and Shapiro allegedly sought to avoid investors cashing out at the end of their terms and boasted in marketing materials that “clients keep coming back to [Woodbridge] because time and experience have proven results. Over 90% national renewal rate!”

While Woodbridge claimed it made high-interest loans to third parties, the SEC’s complaint alleges that the vast majority of the borrowers were Shapiro-owned companies that had no income and never made interest payments on the loans.

The SEC complaint also alleges that Shapiro and Woodbridge used investors’ money to pay other investors, and paid $64.5 million in commissions to sales agents who pitched the investments as “low-risk” and “conservative.”

Shapiro is alleged to have diverted at least $21 million for his own benefit, including to charter planes, pay country club fees, and buy luxury vehicles and jewelry, the release said.

The SEC’s complaint charges Shapiro, Woodbridge and some affiliated companies with fraud and violations of the securities and broker-dealer registration provisions of the federal securities laws.

The SEC is seeking return of allegedly ill-gotten gains with interest and financial penalties.

A hearing has been scheduled for Dec. 29 on the SEC’s request to continue the asset freeze, and a motion for the appointment of a receiver over Woodbridge and the related companies is pending.

Woodbridge is a Sherman Oaks, Calif.-based next generation financial products company that filed for bankruptcy on Dec. 4 in the U.S. Bankruptcy Court for the District of Delaware. The Chapter 11 case number is 17-12560.

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